Why I Hope This Blog Doesn’t Matter To You

I pride myself on getting up bright and early to provide you with informative rants on the news of the day that will impact your credit union, but today is different. I’m hoping that the information I give you is obsolete and unnecessary. Here it goes.

On October 3rdregulations extending the “Military Lending Act” (MLA) officially to credit card transactions took effect. This means that when providing credit cards to a member of the armed services or dependent, you may not charge a Military Annual Percentage Rate (MAPR) greater than 36%. In addition, there are unique disclosures that must be provided.

The most important thing to keep in mind is that the MAPR is calculated differently than the traditional APR. For example, in calculating the APR you would include any premium or fee for credit insurance or debt suspension agreement.

The good news is that the regulation permits lenders to exclude from the MAPR calculations. Bona fide and reasonable fees can be excluded from the MAPR calculation. A fee meets this criteria if it is similar to fees imposed by other creditors for “the same or substantially similar product or service.” If you don’t want to risk being challenged over whether a fee is in fact bona fide, a compliance “safe harbor” (see yesterday’s blog) is provided. A bona fide fee is reasonable “if the amount of the fee is less than or equal to an average amount of a fee for the same or a substantially similar product or service charged by 5 or more creditors each of whose U.S. credit cards in force is at least $3 billion in an outstanding balance (or at least $3 billion in loans on U.S. credit card accounts initially extended by the creditor) at any time during the 3-year period preceding the time such average is computed.” This notice from CUNA Mutual provides guidance on how you can make that calculation.

When the MLA was first implemented, you could rely on information provided by your member to determine if they were entitled to the MAPR’s protection. But since October of last year, you only receive safe harbor protection for complying with the law’s requirements if you run a member’s identification information in the DMDC database. In addition, the major credit reporting agencies can also flag MLA eligibility.

Remember, this regulation simply expands on requirements that were already imposed on lenders as a result of the Department of Defense’s decision to expand the coverage of the Military Lending Act from just high cost pay-day loans, vehicle title loans and refund anticipation loans to virtually all types of consumer transactions.

When the DOD decided to expand the coverage of the MLA, about the only regulator who thought that the DOD’s updated regulatory framework made sense was the CFPB. Need I say more? Both the banking and credit union trade groups continue to express concern that the regulations, no matter how well-intentioned, needs to be better explained. In addition, it seems to me that, by basing bona fide fees on the practices of the largest credit card providers the regulations have the unintended consequence of making it more difficult for smaller lenders such as credit unions to cost effectively provide credit cards to military personnel and their dependents.

But the time for complaining is over. Besides, that’s my job. Unfortunately, I get the sense that there are some credit unions that aren’t quite up to speed when it comes to complying with this regulation. Be sure to take a nap when you get home today so you are nice and fresh for tonight’s Yankee game.